Autori
Saltari, EnricoTicchi, DavideTitolo
Risk aversion, intertemporal substitution, and the aggregate investment-uncertainty relationshipPeriodico
Università degli Studi di Roma "La Sapienza" - Dipartimento di Economia Pubblica. Working PaperAnno:
2004 - Volume:
5 - Fascicolo:
69 - Pagina iniziale:
1 - Pagina finale:
30We analyze the role of risk aversion and intertemporal substitution in a simple dynamic investment model. Our main finding is that risk aversion cannot by itself explain a negative relationship between aggregate investment and aggregate uncertainty, as the effect of increased uncertainty on investment also depends on the intertemporal elasticity of substitution. In particular, the relationship between aggregate investment and aggregate uncertainty is positive even if agents are very risk averse, as long as the elasticity of intertemporal substitution is low. A negative relationship requires that the relative risk aversion and the elasticity of intertemporal substitution are both relatively high or both relatively low. We also show that the implications of our model are consistent with the available empirical evidence.
SICI: 1974-2940(2004)5:69<1:RAISAT>2.0.ZU;2-9
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